Apr 022012
 
 April 2, 2012  Posted by at 3:02 am Finance
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Jack Delano Paper Pusher September 1941 Sheldon Springs, Vermont. "Feeding machine that grinds wood into pulp, one of the last stages in making paper at the Mississquoi Corporation mill"

… Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses. • Juvenal, Satire X

The ancient Roman empire left modern day politicians with a few strategic gems. Divide and rule is one. Bread and circuses is another. Bread and circuses is a strategy that works miracles; you can steal people's very seats from under their behinds as long as you keep them fed and entertained. It's, however, not a strategy that works forever. If and when people can no longer afford their daily bread and circus, they will rise up against whoever is in power. And the latter, anno domini 2012, must be well aware of this.

Which leads us to first wonder and then realize what exactly they are up to in the Europe of today.

Greece and Spain both boast overall unemployment rates of over 20%, will youth unemployment well over 50%. Against that backdrop, two developments last week demand attention, and not necessarily separately; it may be time to put these things together. First, some details from Agustino Fontevecchia for Forbes:

Europe Beefs Up Firewall To Almost $1 Trillion As Spain Unveils Austerity

[..] In what Spanish Finance Minister Cristobal Montoro dubbed the biggest austerity package in the post-Franco era, the administration led by Prime Minister Mariano Rajoy presented its budget. The Iberian country unveiled plans to cut €27.3 billion ($36.4 billion) from its budget this year through a mix of spending cuts, improved revenue collection, and pension plan reform.

Spain is looking to cut an 8.5% budget deficit to about 5.3%, a €35 billion ($46.6 billion) swing according to Barclays. A few weeks ago, Prime Minister Rajoy unilaterally decided Spain’s deficit target would be less severe than the original 4.4% expected by European authorities. Beyond the budget deficit, Spain faces structural problems including unemployment stuck at around 23% amid rigid labor markets.

Protests flared up through the country, with two big unions (Comisiones Obrears and Union General de Trabajadores) organizing massive strikes to protest the austerity package. Among the sticking points were a 7% hike in electricity bills and a 5% utility bill rise. The government also pledged to cut ministry budgets by 16.9%, more than the 15% expected, and raise business taxes, while keeping the value added tax unchanged to "avoid hurting consumption," as Vice President Soraya Saenz de Santamaria explained.

European finance ministers managed to convince themselves that they needed to run both the ESM and the EFSF in tandem to gain market confidence. Adding everything together (including funds already disbursed to Greece, Portugal, and Ireland), Europe "is mobilizing an overall firewall of approximately EUR 800 billion, more than USD 1 trillion." They also pledged to commit €150 billion to the IMF in an attempt to convince the G-20 and other major economies to further capitalize the IMF in order to deal with the crisis. [..]

The news was well received by markets, even though it doesn’t put the sovereign debt crisis to sleep. Spain and Portugal are still against the ropes, along with Italy, and there’s skepticism as to how realistic their austerity aspirations will be.

Still, equities rallied and bond spreads narrowed. Major European equity indices including the FTSE 100 (England), CAC40 (France), and Dax (Germany) rallied on Friday. Big European banks traded in the U.S., like Banco Santander, Credit Suisse, Deutsche Bank, and UBS, also rallied.

The unemployment numbers I cited above are common knowledge. So is the fact that taking yet another and additional $36 billion out of the economy will push unemployment – much – higher in Spain. The only thing left to guess at then is what the tipping point is: at what point will so many people be jobless and desolate that they decide to get together and take to the streets with some form of 21st century pitchfork.

You can approach this question from an acedemic point of view, as Jacopo Ponticelli and Hans-Joachim Voth did last year in Austerity And Anarchy: Budget Cuts And Social Unrest In Europe, 1919-2009. And while their report is a nice effort, I'm not so sure myself that measuring the rise and fall in incidence frequencies of several kinds of social unrest for every tenth of a percentage point is the right approach. We are after all dealing with people and their misery here, not with mere numbers that can be adjusted to appear just right.

Still, just as Europe's leaders know that unemployment must rise when a country already down gets squeezed even more, they also know that the people of such a country must and will at some point protest such an added squeeze with more forceful means than their mere voices.

Now, the second part of that twin news item states that those same European leaders managed to come up with over $1 trillion to save EU member states, which of course should be read as: "to save the world banking system" – which holds all the shaky sovereign debt- (and especially the European part of it). Note that this comes on top of the anywhere from $10 trillion – $20 trillion already spent on that same cause. Which haven't proven sufficient, apparently. Not that that is a surprise for anyone who has for instance been following my articles on the topic.

Regardless, we know that there is another $1 trillion there. Which means that the oh so wise men and women in charge of the cash have effectively made a choice. Not a new conclusion, I know, but still one that gets a bit more emphasis by putting both sides of the choice in one and the same day and the same news article.

The choice they have once again made is to save the banks, not the people. Obviously, they work hard to convince everyone that no such choice exists. Their mantra has consistently been, and still remains, that not bailing out the banks, and not buying up all their toxic paper with taxpayer funds, will lead to collapse, armageddon, apocalypse and/or disaster.

And while I have no doubt that not being bailed out would indeed be a disaster for the banks' shareholders, I still keep wondering, like I have done many times before, how much of a disaster it would be for taxpayers. Or, more accurately, while I'm sure it would be rough for the man in the street, I wonder how much more of a disaster it would be than what that man faces right now in the streets of Athens and Barcelona.

There can be no doubt that a 50% and fast growing unemployment rate is a disaster for any society. How much worse would their situation have been had the banks been allowed to fail, and the many trillions of dollars/euros spent – in vain – to prop them up instead used to help the people whose money it is – or was, more accurately – in the first place?

What is the effective return for a society of the money (be it real, virtual, present or future) spent to keep standing upright financial institutions that have made so many bad investments – and often plain wagers – that they would fall down without artificial support? And what would, to flip over to the other side of the coin, be that effective return if the banks would have been allowed to restructure, default and vanish, and the money would instead have been spent on keeping people's deposits with those banks guaranteed, and their jobs made a higher priority than traders bonuses or shareholders' equity?

Not exactly a question we've been getting satisfactory answers to, is it? Or, to be precise, any answers at all. The political, business and media mantra never wavers: we have to prevent disaster. And little by little, in order to achieve that, a disaster is created. Invariably, every single time there's another troika announcement, or another EU emergency meeting, the loss numbers have been bumped higher than they were the last time. And invariably, this is allegedly necessary to prevent a disaster. And just as invariably, it will prove to not be sufficient to save neither the banks nor the system, let alone the day.

All we can really count on is for the numbers to rise, both for the losses and for the funds required to offset them. And as along as we keep believing the "or else armageddon" mantra, we will keep on paying more and more into that mantra. Until we no longer can. Like the 75% of Spanish youth that will soon be unemployed, and without any shape or form of a credible future. Other than one shaped like a pitch fork.

And yes, of course, as the Forbes piece quoted above states, "The news was well received by markets, even though it doesn’t put the sovereign debt crisis to sleep. [..] … equities rallied and bond spreads narrowed. Major European equity indices including the FTSE 100 (England), CAC40 (France), and Dax (Germany) rallied on Friday. Big European banks traded in the U.S., like Banco Santander, Credit Suisse, Deutsche Bank, and UBS, also rallied. ". After all, the financial markets just received confirmation that they got their hands on even more of your money.

As if to prove (and as if that were necessary) that she doesn't care about Spain's young generation, Angela Merkel told Czech daily Lidove Noviny that: "we need to agree on more general targets, for example to lower unemployment among the youth and raise the level of employment.".

And if she doesn't care, why should her compatriots? AP's Geir Moulson writes that German public workers will get a 6.3% raise over 2 years, while their Greek and Spanish counterparts either lose their jobs or see their salaries cut by double digit percentages. Excuse me, but weren't you guys in a monetary union together? In view of that attitude, why would the Spanish care about Germans any longer? They might want to consider staying home for the summer holidays.

All of the above must be common knowledge for the voices who preach the "if we don't do this, then apocalypse will surely follow" sermon, the heads of state and finance for the EU, and ECB and the IMF (plus Washington and Wall Street, needless to say). Either that or they're blind nitwits. Or bought servants.

Which leaves us with only one conclusion: The Shock Doctrine has come to Europe too.

People's capital is being taken from them and subsequently used against them. Any and all revolt and unrest that results from this, which is sure to explode soon around the Mediterranean, is anticipated to do so, and even welcomed and invited, will be beaten down with a vengeance. Disaster capitalism doesn't take prisoners. As for the future of countries like Greece and Spain, Naomi Klein perhaps says it best herself:

[..] for economic shock therapy to be applied without restraint, some sort of additional collective trauma has always been required. Friedman's economic model is capable of being partially imposed under democracy – the US under Reagan being the best example – but for the vision to be implemented in its complete form, authoritarian or quasi-authoritarian conditions are required.

 

Home Forums Disaster Capital Hits Europe

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April 2, 2012 at 3:02 am #8570

Raúl Ilargi Meijer

Jack Delano Paper Pusher September 1941 Sheldon Springs, Vermont. "Feeding machine that grinds wood into pulp, one of the last stages in making p
[See the full post at: Disaster Capital Hits Europe]

April 3, 2012 at 12:14 am #2248

NZSanctuary

Nice post. Conditions are certainly approaching where some sort of overt authoritarian measures will be required. It is interesting to see how they have been gradually implemented in the US, but I am not aware of as many measures being put in place in Europe. Will their introduction necessarily be more swift and obvious?

Will war (Iran or similar) be the pretext? False flag operation(s)? Some other kind of disaster? Or will we see more gradual oppression.

Keep your eyes open. Watch the magician’s hands closely.

April 3, 2012 at 1:33 am #2249

TINW

“And if she doesn’t care, why should her compatriots? AP’s Geir Moulson writes that German public workers will get a 6.3% raise over 2 years, while their Greek and Spanish counterparts either lose their jobs or see their salaries cut by double digit percentages. Excuse me, but weren’t you guys in a monetary union together? In view of that attitude, why would the Spanish care about Germans any longer? They might waant to consider staying home for the summer holidays.”

What in the world are you going on about at the end there? The best thing the Germans could do at this point would be to ratchet up wage inflation so the south can become more competive. 6% over 2 years is nothing, not even a fraction of what is needed, and yet it sounds like you are implying that the germans should be accepting austerity in solidarity with the south.

April 3, 2012 at 11:20 am #2257

FrankRichards

Tony Blair already put lots of “emergency” measures in place in Britain, with no particular excuse. As for Europe itself, it is my understanding that Civil Law countries can declare emergency powers pretty much whenever, with much more impunity than under Common Law.

April 3, 2012 at 3:02 pm #2258

Jackfrost

I find the numbers interesting…46 billion in cut-backs or extra taxes/fees for a population of 46 million…that’s $1000 per person (4,000 for a family of four)….that doesn’t sound insurmountable for a first world country….can others comment on my position?

April 3, 2012 at 10:09 pm #2268

Supergravity

@FrankRichards
http://en.wikipedia.org/wiki/Civil_law_%28legal_system%29
http://en.wikipedia.org/wiki/Legal_origins

The legal origins theory makes the distinction between civil and common law to investigate what economic effects it has on a country to follow either. Both systems should also have distinct but diverse effects on the ease of economic power grabs or on declaring states of [economic] emergency, how to specify the grounds and procedures for declaring and maintaining said state.

Article 103 in the dutch constitution is a bit dubious to that end, it references the possibility, by decree of the monarch, to suspend laws and several constitutional rights for emergency reasons of internal and external security.
Its not necessarily dangerous, maybe, if such constitutional emergency exemption clauses are transparent and democratically negotiable, if the applicable grounds for such emergencies are constricted and no legal components are secret. The US COG doctrine is seditious because it is alien to the constitution and the structure of common law, and completely shrouded in secrecy.

In any country the phrase of ‘national security’ is enough to supend or subvert most important protections and state structure, and to void rational thought in the political and legal realms. Im not sure whether common law structures are inherently less vulnerable to abuse when it comes to ‘national security’ or evil emergencies.

April 3, 2012 at 11:49 pm #2270

ashvin

TINW post=1853 wrote: What in the world are you going on about at the end there? The best thing the Germans could do at this point would be to ratchet up wage inflation so the south can become more competive. 6% over 2 years is nothing, not even a fraction of what is needed, and yet it sounds like you are implying that the germans should be accepting austerity in solidarity with the south.

A little too late for all of that “let’s make the peripheral Eurozone nations more competitive” talk, donchya think? The best thing Germany could do is cut their losses, get out and start planning for a completely different future than they expected before, which, incidentally, is the best thing all of the countries could do. How can it be the best thing if it leads to instant economic depression and social unrest? Well, that’s where we are headed anyway. Wage inflation in Germany sounds great, but, with most everything, it’s the context that counts. Doing that while keeping the Union together by essentially mandating wage (and standard of living) destruction on the workers of other sovereign countries is a recipe for an extremely painful future, despite the few marginal inches that the can may travel down the road. Either they keep you alive until the pain itself finally kills you, or they feed you pain killers and let the terminal illness take you away in relative peace – I would elect for the latter.

April 4, 2012 at 5:16 am #2275

Reverse Engineer

Now, the second part of that twin news item states that those same European leaders managed to come up with over $1 trillion to save EU member states, which of course should be read as: “to save the world banking system”

Gotta love that. Always seems to be another $1T hiding somewhere to backstop Bankster losses. I was told when I was a kid that “Money doesn’t Grow on Trees”. It must be Growing on SOMETHING though, because they always seem to be able to Harvest just enough more every month to Feed the Banks.

I want one of those Laptops with the “Infinite Money Creation F4 Button” on it! Where do you download the App for this? Is it on DaFed.com Website? If you need to be a Member for the Download, I’ll fork over my Email Addy and all my Demographic Information also for data mining purposes! Hell, I’ll even give Google Carte Blanche to capture my entire hard Drive and every Keystroke I make also! I’ll keep my Cell Phone turned on all the time also so they can track me every time I go to the toilet to take a shit! I’ll also Video it so they can add that to the database! Just give me that damn App already!

RE

http://www.doomsteaddiner.org

April 4, 2012 at 11:28 pm #2292

pipefit

“…………to prop them [banks] up instead used to help the people whose money it is – or was, more accurately – in the first place?

Are you sure the trillions of Euros used to prop up the banks really exists? Same with dollars and Yen. What if a dictator somehow seized power, worldwide, and declared all fiat null and void?

Would that stop Saudi Arabia from trading oil for oranges? Or you from trading your labor for a plate of steak and potatoes?

Fiat currency has gone well beyond the concept of money, and is now off in some other universe. It will be almost impossible to go back the other way, to strictly paper bills. We are going to have to go back to commodity money of some sort, at least for a few generations. With modern debit card technology, this will be easy. Just don’t be a bag holder of fiat, lol.

April 5, 2012 at 8:12 am #2301

Golden Oxen

@ pipefit Would most likely be gold and silver, worked well in the past and are real. Digital system using both already in place via goldmoney.com.

April 5, 2012 at 8:36 am #2302

Reverse Engineer

Golden Oxen post=1905 wrote: @ pipefit Would most likely be gold and silver, worked well in the past and are real. Digital system using both already in place via goldmoney.com.

“Digital Gold” is a Ponzi waiting to happen.

RE

April 5, 2012 at 8:49 am #2303

Golden Oxen

@ RE No doubt when the term is used broadly: in the particular site mentioned however their credentials are impeccable IMHO. In no way am I suggesting that gold in the hand is not the only way, I merely point out that this is a trustworthy site for someone desiring a gold or silver checking account.

April 5, 2012 at 1:51 pm #2306

pipefit

Hi RE-I’m not sure what you mean by ‘digital gold’. If you reread my post, you will see that I specifically said DEBIT cards, not CREDIT cards.

As you seem to be aware, there are many forms of paper gold floating around right now, including futures contracts with scant warehouse gold to back claims, long and short. I would agree that there is a ponzi critter in there somewhere. Also, the gold ETF’s are said to have dubius backing, from a physical gold standpoint.

That is not what I’m talking about. I’m talking about a person, such as yourself, that takes an ounce of gold to the bank, and leaves with a debit card that has one ounce of gold of buying power. You go to the store and load up grocery cart, and pick out your flat screen TV, and then you swipe your card. Your receipt, if it shows your balance, would say that you have 9/10 of an ounce of gold on your card, if your purchase cost 1/10 ounce.

If your employer owes you an ounce of gold, he can hand you the ounce, or you can opt for direct deposit.

I would expect a bi-metal system, (or even tri-metal) would emerge, and you would pay with silver dimes at small out of the way places, and even copper coins to pay token expenses.

April 5, 2012 at 1:55 pm #2307

Golden Oxen

@ pipefit That is exactly what goldmoney.com is.

April 5, 2012 at 7:20 pm #2318

Reverse Engineer

That is not what I’m talking about. I’m talking about a person, such as yourself, that takes an ounce of gold to the bank, and leaves with a debit card that has one ounce of gold of buying power.

If you have a BANK involved, then there are BANKSTERS. Who does the accounting? Who does the Inventory? Who writes the software? Who assays the Tungsten? BANKSTERS! Gold will magically disappear from your account and appear in theirs. Poof!

RE

April 5, 2012 at 7:37 pm #2319

pipefit

RE-I’m not saying they won’t hit you with outrageous fees, for example if overspend your gold value. But when I say ‘bank’, what I really mean is is an institution that cannot engage in fractional reserve banking.

Example. You deposit an ounce of gold in the bank, at agreed upon terms, for a specific length of time. (maybe they must pay your account an ounce of silver per year. You give the bank permission to loan your one gold ounce out to someone that wants to buy a car. The length of the term of the auto loan must match your deposit contract with the bank. No lending long and borrowing short. Will slizzards find a way around the rules? Probably. But that is much different than today, where there absolutely no rules what-so-ever.

April 5, 2012 at 8:33 pm #2322

Reverse Engineer

@ PF & GO

The number of reasons such a scheme won’t work are vast and I’m not going to go into all my arguments deconstructing it here. If you are interested, you can read my Theory of Everything Parts I&II for a start.

http://www.doomsteaddiner.org/blog/2012/03/20/theory-of-everything-part-i/

http://www.doomsteaddiner.org/blog/2012/03/22/theory-of-everything-part-ii/

RE

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